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Phoenix was an epicenter for the sub-prime crisis. Speculative home buying with risky mortgage vehicles was common and resulted in a tremendous drop in home sales and the median home price. After stabilizing, the median price slid again in the second half of 2010. Improved fundamentals will help to ameliorate downward pressure on home prices, but it will likely take years for this market to fully recover. Local Market Reports for Phoenix and 154 other metro areas that highlight trends through the 4th quarter of 2010 are now available here. More details on the Phoenix market after the jump.
Phoenix experienced one of the largest swings over the last decade of any housing market in the United States. Homes sales plummeted in 2006 and 2007 following the burst of the subprime bubble. Prices followed suit, tumbling nearly 30% in both 2008 and 2009. Demand perked up and surged 52% over the four-quarter period that ended in March of 2009. Investors rushed in to take advantage of prices that were below market rents in many cases, while first time buyers sought to take advantage of deals well in advance of the first-time homebuyer tax credit. Sales continued to grow through 2010 though slipping in the second half of the year from high levels of demand posted during the same period in 2009. Prices followed suit and began to sag in the latter half of 2010.
Phoenix’s economy suffered along with the housing market. Over the 3-year period ending in December, the economy of Arizona fell 11.4%, but was up 1.4% over the most recent 12 months of this period. The first wave of unemployment in Phoenix came from layoffs in the construction and mortgage finance industries, but as the national economy was enveloped in recession, layoffs became widespread. However, the unemployment rate in December was 8.4%, below the national average of 9.4%, and there were 28,800 more employed workers in December than a year earlier. Job creation was most robust in the professional and business services, trade and transport, and the education and health services sectors. Ironically, the local unemployment rate rose from 8.3% in December of 2009 as new hiring drew more people back into the labor market to search for jobs.
The sharp price contraction in 2007 and 2008 combined with subsequent record low mortgage rates boosted affordability in the Phoenix market. The average mortgage service ratio (the average mortgage principal and interest payment relative to average household income) fell sharply and stood at 8.7% in the 4th quarter of 2010, nearly half the current U.S. average and half the local historic average.
Improved economic conditions and stable prices in the first half of 2010 helped to stymie the flow of new foreclosures in Phoenix. The 60 and 90 day delinquency rates eased over the 12-month period ending in November. The moratorium on foreclosures due to the robo-singing scandal likely added to this downward trend, but the trend was already in place. Delinquencies that would have gone into foreclosure during the fourth quarter, but were put off due to the moratorium may show up as completed transactions through short-sales or they may cause the foreclosure figures to rise in 2011 once the moratorium is lifted. Furthermore, recent price weakness may place upward pressure on delinquency rates in the spring causing further deterioration.
The Phoenix market experienced a destructive swing in the wake of the subprime crisis and national economic recession. Sales growth and prices stability returned in the 1st half of 2010 as investors and first time buyers swooped in to take advantage of a great buying environment, but conditions have softened and additional employment growth is needed to promote a long-term recovery. Recent price weakness and disruptions in the foreclosure process will delay a sustained recovery. However, Phoenix remains a popular destination for retirees, job seekers, and young families alike, a fact that will foster continued migration to the area and demand for housing.
Curious how your market has done? New Local Market Reports for the 4th quarter of 2010 are now available from NAR Research.
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